Super and the Age Pension
Superannuation savings will help you enjoy a more comfortable retirement than that provided by the Age Pension alone.
The Age Pension is designed to provide a ‘safety net’ for those who do not have enough superannuation or other financial resources to provide an adequate retirement income. So the Age Pension works in conjunction with superannuation.
Most people – women in particular – will continue to be eligible for a full or part Age Pension, supplemented by whatever superannuation benefits they receive.
Eligibility for Age Pension
The Age Pension is the yardstick for the basic amount people can survive on in retirement. Indeed, the Australian Social Security system is targeted to those most in need. To ensure it goes to the right people, applicants are means-tested.
Means testing involves looking at your income and assets to determine your eligibility for a benefit. It also determines the level of the Age Pension benefit you receive based on your financial means.
There are two tests used in deciding the amount of Age Pension to which you are eligible:
The Assets Test
The government sets asset thresholds applicable to a range of situations – your own home is not counted in this test. If your assets are in excess of the threshold, the Age Pension you are eligible to receive reduces by $3.00 for every $1,000 of asset value over the threshold.
The Income Test
The government also sets income thresholds applicable to a range of situations. If you earn income from any job or investment, and it is in excess of the income threshold, your Age Pension is reduced by 50 cents in the dollar for a single pensioner and by 25 cents in the dollar for each member of a couple.
The pensions that result from both of these tests are then compared and the smaller pension is the one that you are entitled to receive from the Government.
While the Age Pension always forms part of ‘taxable income’, a person whose sole income is the Age Pension will not pay tax as it is below the income tax threshold.
The rate of the Age Pension is different for couples and single people and it is adjusted periodically to take account of inflation and changes in the general standard of living in the community.
There are also benefits and concession rates available to pensioners from Commonwealth, State and local governments, including health benefits and reduced charges on rates, telephones, gas and electricity, car registration and public transport.
Increase in Age Pension qualification age
The age at which you may qualify for the Age Pension depends on your date of birth.
For those born before 1 July 1952, the qualifying age is 65 years. The qualifying age for those born after 30 June 1952 is gradually being increased up to 67 years, as set out in this table:
|Date of birth
|1 July 1952 to 31 December 1953
||65 ½ years
|1 January 1954 to 30 June 1955
|1 July 1955 to 31 December 1956
||66 ½ years
|1 January 1957 and later
From 20 September 2007 all new superannuation income streams are included in both the assets and income tests.
For Age Pension purposes, the purchase price of a lifetime or life expectancy superannuation pension purchased before 20 September 2004 is not counted towards the asset test, but the income received may be counted for the income test.
For these pensions purchased on or after 20 September 2004, up to 50 per cent of the purchase price of the pension may be counted towards the assets test and the income received may also be counted towards the income test.
For more detailed information about the Age Pension, including the appropriate thresholds and other government benefits, contact Centrelink.
Super lump sum or pension when I retire?
The impact of taking either a lump sum or pension from your superannuation account when you retire depends on your individual situation. The decision you make can affect the amount of tax you pay and also your entitlement to a government-funded Age Pension.
Centrelink can provide information about how Age Pension entitlements are affected by the way in which you access your superannuation benefits.
The taxation rules are designed to encourage people to take their benefits as a pension rather than as a lump sum.
There are a range of matters that need to be considered when deciding whether to take your superannuation benefit as a lump sum or a pension. If you have a large benefit you probably should seek assistance from an appropriately licensed and qualified financial planner so that you can ensure that you understand the best option for your particular circumstances.
See Accessing your super for information about when you can access your superannuation savings.